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"Enhanced 401k" only good for Boeing Chicago

By Matthew Kempf, CFP®
SPEEA Benefits Director

If Boeing gets its way at the negotiation table, the pension is dead for new employees hired into a Northwest SPEEA bargaining unit. Instead, they will receive Boeing's "Enhanced 401k," a defined contribution retirement plan that slashes the value of the current benefit by an estimated 41%.

During weekly negotiations sessions, Boeing officials acknowledge this new plan is worth less, is more volatile and provides a much smaller benefit for employees. Our estimates show that if this plan were in place for engineers today, the overall value of their pension benefit would be about $300,000 less. Technical workers' benefit would be valued almost $200,000 less. Both examples are based on average salaries and average years of service for retiring Northwest SPEEA-represented employees over the past 18 months.

For Boeing to take away that kind of value for all new hires, particularly during a period of record profit and backlog, sends a very disheartening message about the new employees' worth to the company.


What is the current
pension worth?

Today's average salary of a Puget Sound engineer with 30 years of service is approximately $134,500. The pension benefit for this employee equals approximately $3,869 a month. Using a valuator (www.immediateannuities.com) to determine retirement value, the total value of the Boeing Company Employee Retirement Pension (BCERP) to the average SPEEA-represented engineer at retirement is $747,000.

The average salary for an employee in the Puget Sound Technical unit with 30 years of service is about $89,000. The BCERP standard benefit formula (currently $83 per year of service) means that retirees with 30 years of service will receive a minimum of $2,490 a month for life, regardless of their salary or final average earnings. Using the same valuator, the minimum value of the BCERP to a 30-year Tech employee at retirement is more than $480,000.

What is the company
proposal worth?

If the stock market performance results in precisely a 10% return for each employee, it would be fairly easy to determine which retirement vehicle would provide more retirement income. For example, an engineer with a current salary of $134,500 with 30 years of service in the Enhanced 401k receiving a 4% raise annually and earning precisely 10% on their "Enhanced 401k" would only have a balance from the company "enhanced" contributions of $440,000 at age 60. Stated another way, if an individual could achieve exactly 10% return each and every year, the "Enhanced 401k" would be a negative 41% "enhancement."

Unfortunately, market returns vary from year to year; from investor to investor, and even within the same year. Using a simple expected return is not an adequate way to examine the plan. Some years have returns in excess of 10%, and some years have returns less than 10%. The 'Monte Carlo method' of analyzing the plan permit ranges of possible risks and outcomes to be analyzed and the most likely ranges of outcomes can be estimated as probabilities.

Monte Carlo Methods
Monte Carlo methods are used to determine the most probable outcome based on multiple variable inputs. For example, if you rolled one 6-sided dice, you would receive a 1, 2, 3, 4, 5 or 6. The odds of rolling a 1 are just as good as the odds of rolling a 6. If you rolled the dice two times and added the result, you would receive either a 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, or 12, but the odds of receiving a 12 are not the same as the odd of receiving a 7, because there is only one combination of dice that add up to 12 and six combinations of dice that add up to 7, making you 6 times more likely to roll a combination that adds up to 7 as you are to roll a 12.

If you roll the same pair of
dice 10 times the results may
seem random.

If you roll the same pair of dice
100 times, patterns start to appear.

If you roll the same pair of dice 10,000 times, patterns become very clear and predictable.

Assuming annual market returns of a random number between - 10% and 30% as a market return and using 100,000 Monte Carlo Method-simulated employees with a current salary of $134,500 with 30 years of service would still produce an average balance very close to $440,000 (because the average of -10% and 30% is 10%), but variations in market returns would cause the outcomes to vary by plus or minus $183,500 for the majority of people (standard deviation). In this analysis, fewer than 6.5% of the 100,000 "Enhanced 401k" simulations outperformed our current pension. The "Enhanced 401k compared to BCERP" chart illustrates a summary of the 100,000 simulations, and the range of possible outcomes based on the variables and assumptions noted in the analysis.

SPEEA proposal

SPEEA's preference is to maintain the pension for all employees and increase the standard benefit equivalent to the negotiated increases during the past 40 years. SPEEA understands the reason behind the company's desire to terminate the pension for new hires, but replacing the benefit with a far-inferior retirement plan does not make sense. 

To help alleviate some of Boeing Chicago's pressure to eliminate the pension, SPEEA proposed allowing individuals to roll over the actuarially equivalent present value of the participant's benefit upon retirement. Then they can opt-out of the monthly payment and instead receive a lump sum from the company. To the extent this is popular, the employee-optional "buyout" would decrease the total size of the pension plan relative to the market capitalization of Boeing, a stated goal of the company.

Pension questions and answers


What's the value of a pension?
You have the benefit of guaranteed retirement income that lasts your lifetime. Like Social Security, it's a monthly check to supplement 401(k) savings. Employees like that the pension provides a fundamental, stable amount of retirement income that is not subject to stock-market fluctuations.

Who gets a pension?
All SPEEA-represented employees in the Prof and Tech unit earn the BCERP pension plan. New hires are included in this benefit, despite Boeing's efforts in past negotiations to take this away.

How much is the SPEEA-Boeing pension worth?
The value of a pension builds over time. The longer you work (and in the alternate formula – the more money you earn during your final five years), the more your monthly check will add up. The benefit is an incentive to build your career at Boeing, rather than go to work at another company.

Do I have to spend my entire career at Boeing to receive the pension?
You do not have to spend your entire career at Boeing to receive the pension. Once vested, your accrued benefit is federally guaranteed and can't be negotiated away. The vesting period is less than five calendar years. If you leave the company as a vested participant, your lifetime benefit will be available to you at a normal retirement age.

Why does Boeing want to take it away?
Boeing wants to cut costs. The company eliminated the pension for new hires in non-union jobs and strong-armed smaller unions in negotiations. Now, they want to eliminate the pension for all new employees hired into a SPEEA bargaining unit.

Defined Contribution
The amount contributed to your retirement is defined by a formula and deposited into an account. Accounts are immediately 100% vested. Individuals bear the investment risk. While protected by the SIPC against fraud, accounts are not protected from investment losses.

Defined Pension Benefit
The actual benefit you receive in retirement is defined by a formula. Individuals are 100% vested after achieving five vesting years (less than five calendar years). The company bears the investment risks and retirement benefits are guaranteed by the PBGC (see www.pbgc.gov).